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HMRC internal manual

International Manual

Controlled Foreign Companies: definitions

Definitions: Controlled Foreign Company

Where in any accounting period a company is a ‘controlled foreign company’ the provisions of Chapter IV apply in relation to that accounting period. A company is a ‘controlled foreign company’ if it is -

  1. resident outside the United Kingdom,
  2. controlled by persons resident in the United Kingdom, and
  3. subject to a lower level of taxation in its territory of residence.

There is no definition of ‘company’ in Chapter IV, so the definition at CTA2010/S1121 applies. A company is any body corporate or unincorporated association, but not a partnership. Where there is any doubt whether a particular entity is a company it will be necessary to obtain its constituting document and consider the relevant foreign legal provisions. Advice on this matter is available from the CSTD Business, Assets & International Base Protection Policy team.

The ‘accounting periods’ of a controlled foreign company are determined broadly on normal Corporation Tax lines but with some modifications. Full details are given at INTM254380.

There are a number of references to ‘resident’ and ‘residence’ in (a), (b) and (c) above: ‘resident outside the United Kingdom’, ‘resident in the United Kingdom’ and ‘territory of residence’. Guidance on the differing meanings of these terms (and of other references to resident and residence in Chapter IV) is given at INTM254400.

The definition of ‘control’ for Chapter IV purposes is at ICTA88/S755D and is set out at INTM254370.

The test of whether a company is ‘subject to a lower level of taxation’ requires a comparison to be made between the taxes which it has paid on its profits in its ‘territory of residence’ and the Corporation Tax which it would have paid on its income if it had been resident in the United Kingdom. Guidance and examples of computations for the lower level of taxation test are given at INTM254380.